Court File and Parties

COURT FILE NO.: CV-18-00593524 MOTION HEARD: 20221212

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Rosemary Cremer, Plaintiff AND: The Law Society of Ontario, Defendant

BEFORE: Associate Justice B. McAfee

COUNSEL: S. Inkol, Counsel, for the Moving Party, the Defendant M. A. Russell, Counsel, for the Responding Party, the Plaintiff

HEARD: December 12, 2022

REASONS FOR DECISION

[1] The Defendants bring this motion for an order that the plaintiff Rosemary Cremer (the plaintiff) answer questions refused on her examination for discovery and an order that the plaintiff reattend on examinations for discovery to answer questions arising from the answers to undertakings and questions improperly refused.

[2] Prior to June 7, 2012, Kenneth James (James) was a real estate lawyer and the principal of James & Associates (the Firm). The plaintiff was the Firm’s bookkeeper and office manager and James’ life partner.

[3] According to the Reasons for Judgment of Justice Rose in R. v. Cremer, 2015 ONSC 83 (O.C.J.) James, the plaintiff and the Firm were charged with the offences between January 1, 2009, and January 7, 2012, of Possession Property Obtained by Crime, namely $3,000,000 in Canadian funds, contrary to s. 354(1) of the Criminal Code and Deal with $3,000,000 in Canadian funds with intent to conceal, contrary to s. 462.31(1) of the Criminal Code. James and the Firm were charged with additional offences, as were the corporations Sterling Capital Corporation (Sterling Capital) and Eveline Holdings Inc. (Eveline Holdings). The plaintiff and James pleaded not guilty to all charges and James entered a not guilty plea on behalf of the Firm.

[4] After James was arrested his license to practice law was suspended. The defendant took custody of the Firm’s trust accounts in accordance with a voluntary trusteeship and later by Court appointment (the Trusteeship).

[5] One of the files turned over to the defendant under the Trusteeship bore the file name “Rosemary Cremer in trust”, but the beneficial owner of the funds was not identified. These particular funds amounted to $302,642.27 (the Matter #47 Funds).

[6] The plaintiff pleads that the plaintiff’s “$302,642.27 trust balance came from two mortgage payouts that occurred approximately three weeks before James assigned the trust account to Trustee Services” (statement of claim, para. 15).

[7] The defendant initially agreed to pay out the Matter #47 Funds to the plaintiff, but the plaintiff felt that she was unable to accept the funds at the time due to her bail conditions.

[8] On November 3, 2015, prior to the evidence phase of the criminal trial, the criminal charges against the plaintiff were stayed. James was subsequently acquitted on January 7, 2016, as set out in the Reasons for Judgment of Justice Rose (R. v. James, 2016 ONCJ 10 (O.C.J.)).

[9] Although James was acquitted in the criminal proceeding, the defendant found him guilty of a number of counts of professional misconduct and on June 26, 2017, his license to practice law was revoked. His appeals were subsequently dismissed (James v. Law Society of Ontario, 2018 ONLSTA 9; 2021 ONSC 1935 (Ont. Div.Ct.)).

[10] In the course of its administration of the Trusteeship, the defendant reversed its decision to pay out the Matter #47 funds to the plaintiff.

[11] On October 25, 2016, Justice McEwen directed payment of the Matter #47 funds to the plaintiff. On November 16, 2016, the Matter #47 Funds were distributed to the plaintiff in compliance with Justice McEwen’s order.

[12] On March 8, 2018, the plaintiff commenced the within action against the defendant claiming damages in the amount of $374,928.32 for breach of fiduciary duty, breach of trust, negligence, abuse and/or misfeasance of public office, and or loss of investment opportunity, damages for legal expenses incurred to have the Matter #47 funds released, damages for infliction of mental injury/or emotional distress and aggravated and punitive damages.

[13] On or about May 29, 2018, the defendant delivered a statement of defence denying liability.

[14] On June 5, 2019, Justice Perell dismissed the defendant’s motion requesting summary judgment (Cremer v. The Law Society of Ontario, 2019 ONSC 3478 (Ont. S.C.J.)). At paragraphs 4 – 44, Justice Perell sets out the lengthy factual background in greater detail.

[15] Prior to the examinations for discovery being held in this matter, a trial in McFlow Capital Corp. v. James et al. (the McFlow action) proceeded before Justice Nishikawa. In addition to James, the other defendants in the McFlow action included the plaintiff, Sterling Capital and Eveline Holdings Inc. According to the Reasons for Decision of Justice Nishikawa dated January 20, 2020 (McFlow Capital Corp. v. James, 2020 ONSC 374 (Ont. S.C.J.):

(i) Eveline Holdings Inc. and Sterling Capital Corporation are alter egos of James and were used as shield for fraudulent or improper conduct (para. 199);

(ii) James and Cremer transferred $2,000,000 of Eveline Holdings Inc.’s money to the Turks and Caicos Islands in an attempt to circumvent an eventual order of the Court (paras. 281-282);

(iii) Cremer is liable for oppression and conspiracy, and is jointly liable with James, Eveline Holdings Inc., and Sterling Capital Corporation for McFlow Capital Corp.’s damages (paras. 341-342);

(iv) An additional $100,000 in punitive damages was awarded against James, Cremer, Eveline Holdings Inc. and Sterling Capital Corporation on a joint and several basis. Punitive damages were awarded against Cremer for her part in deliberately hiding $2,000,000 from the Court, even after a Court order (paras. 415-417).

[16] The plaintiff’s appeal from the decision of Justice Nishikawa was dismissed on October 25, 2021 (McFlow Capital Corp. v. James, 2021 ONCA 753).

[17] In this action, the examination for discovery of the plaintiff took place on June 17, 2020.

[18] The applicable Rules of Civil Procedure are as follows:

Rule 1.04(1) and (1.1):

1.04(1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

(1.1) In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

Rule 29.2.03(1):

29.2.03(1) In making a determination as to whether a party or other person must answer a question or produce a document, the court shall consider whether,

(a) the time required for the party or other person to answer the question or produce the document would be unreasonable;

(b) the expense associated with answering the question or producing the document would be unjustified;

(c) requiring the party or other person to answer the question or produce the document would cause him or her undue prejudice;

(d) requiring the party or other person to answer the question or produce the document would unduly interfere with the orderly progress of the action; and

(e) the information or the document is readily available to the party requesting it from another source.

Rule 31.06(1):

31.06(1) A person examined for discovery shall answer, to the best of his or her knowledge, information and belief, any proper question relevant to any matter in issue in the action or to any matter made discoverable by subrules (2) to (4) and no question may be objected to on the ground that,

(a) the information sought is evidence;

(b) the question constitutes cross-examination, unless the question is directed solely to the credibility of the witness; or

(c) the question constitutes cross-examination on the affidavit of documents of the party being examined.

Rule 34.15(1)(a):

34.15(1) Where a person fails to attend at the time and place fixed for an examination in the notice of examination or summons to witness or at the time and place agreed on by the parties, or refuses to take an oath or make and affirmation, to answer any proper question, to produce a document or thing that he or she is required to produce or to comply with an order under rule 34.14, the court may,

(a) where an objection to a question is held to be improper, order or permit the person being examined to reattend at his or her own expense and answer the question, in which case the person shall also answer any proper questions arising from the answer.

[19] In Ontario v. Rothmans Inc., 2011 ONSC 2504 (Ont. S.C.J.) Justice Perell summarizes the principles concerning the scope of questioning on examinations for discovery at paragraph 129:

• The scope of the discovery is defined by the pleadings; discovery questions must be relevant to the issues as defined by the pleadings: Playfair v. Cormack (1913), 4 O.W.N. 817 (H.C.J.).
• The examining party may not go beyond the pleadings in an effort to find a claim or defence that has not been pleaded. Overbroad or speculative discovery is known colloquially as a “fishing expedition” and it is not permitted. See Cominco Ltd. v. Westinghouse Can. Ltd. (1979), 11 B.C.L.R. 142 (C.A.); Allarco Broadcasting Ltd. v. Duke (1981), 26 C.P.C. 13 (B.C.S.C.).
• Under the former case law, where the rules provided for questions “relating to any matter in issue,” the scope of discovery was defined with wide latitude and a question would be proper if there is a semblance of relevancy: Kay v. Posluns (1989), 71 O.R. (2d) 238 (H.C.J.); Air Canada v. McConnell Douglas Corp. (1995), 22 O.R. (3d) 140 (Master), aff’d (1995), 23 O.R. (3d) 156 (Gen. Div.). The recently amended rule changes “relating to any matter in issue” to “relevant to any matter in issue,” which suggests a modest narrowing of the scope of examinations for discovery.
• The extent of discovery is not unlimited, and in controlling its process and to avoid discovery from being oppressive and uncontrollable, the court may keep discovery within reasonable and efficient bounds: Graydon v. Graydon (1921), 67 D.L.R. 116 (Ont. S.C.) at pp. 118 and 119 per Justice Middleton (“Discovery is intended to be an engine to be prudently used for the extraction of truth, but it must not be made an instrument of torture …”); Kay v. Posluns (1989), 71 O.R. (2d) 238 (H.C.J.) at p. 246; Ontario (Attorney General) v. Ballard Estate (1995), 26 O.R. (3d) 39 (C.A.) at p. 48 (“The discovery process must also be kept within reasonable bounds.”); 671122 Ontario Ltd. v. Canadian Tire Corp., [1996] O.J. No. 2539 (Gen. Div.) at paras. 8-9; Caputo v. Imperial Tobacco Ltd., [2003] O.J. No. 2269 (S.C.J.). The court has the power to restrict an examination for discovery that is onerous or abusive: Andersen v. St. Jude Medical Inc., [2007] O.J. No. 5383 (Master).
• The witness on an examination for discovery may be questioned for hearsay evidence because an examination for discovery requires the witness to give not only his or her knowledge but his or her information and belief about the matters in issue: Van Horn v. Verrall (1911), 3 O.W.N. 439 (H.C.J.); Rubinoff v. Newton, [1967] 1 O.R. 402 (H.C.J.); Kay v. Posluns (1989), 71 O.R. (2d) 238 (H.C.J.).
• The witness on an examination for discovery may be questioned about the party’s position on questions of law: Six Nations of the Grand River Indian Band v. Canada (Attorney General) (2000), 48 O.R. (3d) 377 (S.C.J.).

[20] While certain questions may be permitted at the discovery stage, matters of admissibility and weight are left to the trial Judge (Ramsamugh v. Osman, 2022 ONSC 5719 (Ont. S.C.J.) at para. 7, citing Marupov v. Metron Construction Inc., 2014 ONSC 3535 (Ont. S.C.J.) at para. 23). In XCG Consultants Inc. v. ABB Inc., 2013 ONSC 7035 (Ont. S.C.J.) Justice van Rensburg states as follows at para. 11:

[11] I also note that the net is often cast more broadly on discovery than at trial; simply because a question is answered on discovery does not mean that the information obtained will in fact be relevant at trial, and counsel retain the right to object to the admissibility of any evidence at trial, even where a question is ordered to be answered on discovery. As Master MacLeod noted in Monarch Construction Ltd. v. Axidata Inc., [2002] O.J. No. 2659 (S.C.), at para. 13:

…Relevance cannot be known with certainty by the person asking the question at the time of discovery since the answer has not yet been given. Accordingly a question which may lead to a relevant line of inquiry or which builds on another relevant answer must also be answered. It is important to recognize that relevance under our current discovery rules is far broader than at trial and is not synonymous with admissibility. The latter is a matter for the trial judge to determine.

While the Monarch case was decided under the former rule which applied a “semblance of relevance” test, the Master’s observations continue to apply.

[21] The questions at issue on this motion were argued in three categories. The question numbers and wording are taken from the Form 37C charts.

Category No. 1: Questions Relating to Information Previously Sought in the Trusteeship, Under Advisement Nos. 3, 4, 5, 6, 7, 8 and 9

[22] The defendant argues that the answers to these questions are relevant and go to the heart of the case in understanding the defendant’s actions, including the reversal of its initial decision to pay out the Matter #47 Funds.

[23] The plaintiff argues that the issue was already determined in the trusteeship and the information sought was not required to substantiate the plaintiff’s entitlement to be paid the trust funds. The plaintiff argues that the defence is not dependent on the answer to the questions.

[24] The plaintiff pleads that the defendant requested “information about unrelated activity in the trust account, including about a deposit of $2,000,000 unrelated to the two mortgage investments that comprised the $302,642.27 trust balance” (statement of claim, para. 40).

[25] The plaintiff pleads that the defendant acted in bad faith, breached the standard of care, breached its fiduciary duty, and acted in excess of its powers by “demanding Cremer provide information about unrelated activity in the trust account, including about other mortgage investments and a $2,000,000 deposit that were irrelevant to Cremer’s entitlement to the $302,642.27 trust balance and using such demands as an unwarranted justification to delay distribution of her funds to her” (statement of claim, paras. 67, 70, 72).

[26] The defendant pleads that, as trustee of the trust accounts, it was responsible for identifying, allocating and distributing funds to beneficiaries, but was unable to confirm the plaintiff’s entitlement to any funds because the documents provided did not contain sufficient information to explain the account activity, to verify the ledger balance, or to substantiate the plaintiff’s entitlement to the funds (statement of defence, paras. 6, 12).

[27] The defendant also pleads that it requested “full particulars related to an unexplained deposit of $2,000,000 posted to the Plaintiff’s trust ledger on August 26, 2011, payment of $500,000 made the same day, and two payments of $750,000 each on September 30, 2011” and that “all of its requests for information were relevant and necessary in order to verify the identities of the persons beneficially entitled to funds” (statement of defence, paras. 22-23).

[28] The defendant further pleads that “the onus was on the Plaintiff to provide sufficient information to substantiate her entitlement to the trust funds”, and that she failed to provide essential information, refused to provide answers to reasonable questions about unexplained activity in the trust account, and, as bookkeeper for the law firm, failed to keep proper books and records (statement of defence, paras 31, 46).

[29] The questions in this category are relevant and proper questions based on these pleadings. They are relevant to the issue of whether the defendant’s requests for information were relevant and necessary as pleaded by the defendant and whether it was proper for the defendant to reverse its decision to release the Matter #47 Funds.

[30] This issue was not determined in the Trusteeship. Although the Matter #47 Funds were ordered to be released to the plaintiff, the endorsement dated October 25, 2016, also acknowledged that there were “irregularities in the ledger”.

[31] I am satisfied that the questions in this category are relevant based on the pleadings.

Category No. 2: Questions Relating to the Criminal Charges that were Stayed, Under Advisement No.11 and Refusal Nos. 9 and 10

[32] The defendant argues that the questions in this category are relevant proper questions.

[33] The plaintiff argues that the questions are improper, related solely to credibility and demonstrate that the defendant is trying to continue an investigation of the plaintiff and matters related to the criminal proceeding and trading on suspicion and innuendo to impeach her credibility. The plaintiff argues that the questions amount to a fishing expedition.

[34] The plaintiff pleads particulars related to the criminal investigation and its outcome. The plaintiff pleads that she and her principal James were charged in relation to crimes carried out by one of the firm’s former clients, on suspicion of fraud, money laundering and possessing the proceeds of crime (statement of claim, paras. 6-8). The plaintiff further pleads that the defendant refused to distribute the funds to her because she was a co-worker and co-accused of James (statement of claim, paras. 33-35). The plaintiff pleads that the charges against her were stayed, and that James was fully acquitted by Justice Rose of the Ontario Court of Justice (statement of claim, paras. 9-10).

[35] The defendant pleads that the plaintiff and James were criminally charged with various crimes related to their own activities, not just those of their client (statement of defence, paras. 7-8). The defendant further pleads that the plaintiff’s position as firm bookkeeper and her arrest on charges of possession of property obtained by crime were factors to consider when allocating the trust funds (statement of defence, para. 18).

[36] In the reasons for judgment of Justice Rose, the existence of false invoices and the seizure of $72,991 in cash at the firm’s office (where the plaintiff was office manager) and $665,261 in cash at James’ home (where the plaintiff lived) are noted at paragraphs. 5 and 6. At paragraph 101 Justice Rose states: The cash and false invoices are quite suspicious but do not elevate the evidence to a level of proof beyond a reasonable doubt. Mr. James is acquitted of Count 3.”

[37] I am satisfied that the questions in this category are relevant based on the pleadings.

Proportionality

[38] The plaintiff also argues that the answering of the questions refused would offend the principle of proportionality. The plaintiff relies on Rule 29.2.03(1)(c) and argues that undue prejudice will be caused to the plaintiff. The plaintiff argues that the refusals seek information related to criminal charges and the plaintiff suffers from anxiety exacerbated by such investigations. The plaintiff relies on findings made by Justice Rose regarding “a veiled threat” made by an RCMP officer if the plaintiff did not cooperate. The plaintiff argues that the questions reopen old wounds.

[39] On this motion the plaintiff has produced two doctor’s letters from 2014 and 2015. I was not referred to current medical documentation. The actions of an RCMP officer were more than 7 years ago. I am not satisfied that such actions in the criminal matters are a justifiable basis not to answer certain relevant questions in this action.

[40] To the extent that the plaintiff has a concern that the defendant will provide information to public authorities, the defendant acknowledges its obligation under the deemed undertaking rule.

[41] The plaintiff chose to commence this litigation. The defendant is entitled to defend itself.

[42] Based on the evidence before me, the answering of any of the impugned questions taken under advisement and refusals would not offend the principle of proportionality by causing undue prejudice to the plaintiff.

[43] The questions in Category Nos. 1 and 2 are relevant based on the pleadings. The answering of these questions does not offend the principle of proportionality. There is no basis to otherwise decline to order that the questions be answered. The questions shall be answered.

Category No. 3: Questions that the Plaintiff Answered but Defendant Deems to be Refusals or Answers that Require Follow-Up Questions U/A No. 12, Refusal Nos. 1, 2, 3, 4, 11

[44] The parties agree that the questions in this category have been answered and are no longer refusals. The issue for determination is whether the questions have been fully answered and/or whether a re-attendance ought to be permitted to answer proper questions arising from the answers given.

[45] The defendant argues that the answers provided are not fully responsive and/or that a reattendance to answer proper follow-up questions ought to be ordered.

[46] The plaintiff argues that the questions have been sufficiently answered and that a reattendance to answer follow-up questions would not be appropriate.

[47] The defendant agrees that U/A No. 12 has now been answered. The issue of reattendance to answer proper follow up questions regarding this question and the other questions in this category is dealt with below.

[48] The answer to Refusal No. 1 is not fully responsive. The question asks who was reconciling the ledger for Sterling Capital Corporation. The answer does not specifically refer to the ledger for Sterling Capital Corporation. A fully responsive answer shall be provided.

[49] The answer to Refusal No. 2 is not fully responsive. The question asks if the plaintiff “handled” the ledger for Eveline Holdings Inc. The answer refers to the trust account being “reconciled”. A fully responsive answer shall be provided.

[50] The answer to Refusal No. 3 is responsive, but limited information is provided. The question asks what Sterling Capital is. The answer provided is that Sterling Capital Corporation is a company that at times was a client of James & Associates.

[51] The answer to Refusal No. 4 is not fully responsive. The plaintiff is asked if there is activity on the ledger, how can it be unrelated to the mortgages. The answer provided on October 7, 2022, and the additional information provided do not fully respond to the question. A fully responsive answer shall be provided.

[52] The answer to Refusal No. 11 is not fully responsive. The plaintiff is asked if she knew there was property obtained by crime in possession of James and Associates. The plaintiff does not specifically provide an answer to that question. A fully responsive answer shall be provided.

Reattendance

[53] The defendant seeks an order that the plaintiff reattend to answer questions arising from the answers to undertakings and the questions improperly refused, including the questions in Category No. 3.

[54] The plaintiff submits that there should be no reattendance. The plaintiff also submits that the defendant ought to have provided evidence as to what areas counsel was proposing to explore on the requested reattendance.

[55] The defendant submits that it is entitled to a reattendance on an oral examination for discovery and it is not required to provide a preview of the proposed questions.

[56] As stated by Master MacLeod, as he then was, in Senechal v. Muskoka (Municipality) at para.8:

[8] …The point is that discovery rights are subject to court supervision and are not absolute rights. Discretion should normally be exercised to ensure the purposes of full and fair discovery are served but to prevent abuses of the discovery process. Procedural rules, it has been observed, should be the servants of justice and not its master. This principal is enunciated in Rule 1.04(1).

[57] In Senechal, the following is stated at para. 5:

[5] The question of examining “more than once” is in practice a question of whether the examination was actually completed. Improper refusals are an interruption of the discovery while undertakings are an acknowledgement that the question is a proper one and a promise to obtain and provide the answer. Generally speaking, had the discovery not been interrupted by the refusal or the answer to the undertaking been available, not only would the answer have been given under oath as part of the transcript but the examining party would have been entitled to ask appropriate follow up questions as part of the examination. Arguably then an answer that genuinely gives rise to follow up questions should give rise to a right to complete the oral discovery as if the question has been answered. In S.E. Lyons & Son Ltd. (1978) v. Nawock Holdings Ltd. (1978), 20 O.R. (2d) 234; aff’d (1978) 23 O.R. (2d) 727 (H.C.J.)] Master Sandler held that while it is perfectly sensible for parties to agree to provide answers to undertakings in writing, if the examining party insisted upon it, the answers should be given under oath and proper follow up questions could be asked. For those purposes, he ordered a reattendance. S.E. Lyons was upheld on appeal and was also specifically approved by the Divisional Court Ferrovechio v. Barbieri (1979) 10 C.P.C. 1. While S.E. Lyons was decided under the old rules, it has been cited with approval subsequently Stickle v. Godin, [1994] O.J. No. 441 (Gen. Div.). This was the analysis in my own reasoning in Couperthwaite v. Damboise, [2003] O.J. No. 1641 (Master) @ para. 17]. I have no hesitation in agreeing with the moving party that the party conducting a discovery should generally be entitled to complete the oral discovery once undertakings and questions improperly refused have been answered.

[58] In addition to the questions taken under advisement and refused that have subsequently been answered or ordered to be answered, the plaintiff gave twelve undertakings at her examination for discovery. At the time this motion was brought, no undertakings had been answered.

[59] Had these numerous questions been answered on the initial attendance, the defendant would have been entitled to ask proper follow up questions at that time. The defendant should not be at a disadvantage because the plaintiff answered, or is ordered to answer, certain questions at later time.

[60] The defendant is not required to provide a preview of the questions that might be put to the plaintiff, which would give the plaintiff an unfair advantage (Marchese v Fiture, 2010 ONSC 1111 (Ont. S.C.J.) at para. 14).

[61] To the extent that the plaintiff relies on Clustercraft Jewellery Manufacturing Co. Ltd. v. Wygee Holdings Ltd. at paragraphs 12 and 13, as stated at paragraph 13, the court rejected the suggestion that there is a general requirement that affidavit evidence is required before an order for re-attendance will be made.

[62] In all of these circumstances, and having regard to the questions at issue, I am satisfied that a reattendance is just and will serve a useful purpose.

[63] The plaintiff shall reattend on an examination for discovery to answer proper questions arising from the answers to undertakings, the answers to questions taken under advisement and refused that were subsequently answered by agreement or ordered to be answered.

Costs

[64] If successful on the motion, the defendant seeks costs on a partial indemnity basis in the amount of $7,500.00. If successful on the motion, the plaintiff seeks costs on a partial indemnity basis in the amount of $5,000.00.

[65] The defendant was successful on the motion and is entitled to costs. Having regard to all of the circumstances of this motion, a fair and reasonable amount that the plaintiff could expect to pay for costs is the all-inclusive sum of $6,000.00. Costs of the motion are fixed in the all-inclusive sum of $6,000.00 payable by the plaintiff to the defendant.

Summary of Order

[66] Order to go as follows:

1. The plaintiff shall answer the questions in Category Nos. 1 and 2;
2. The plaintiff shall provide fully responsive answers to the following Category No. 3 questions: Refusal Nos. 1, 2, 4 and 11;
3. The plaintiff shall reattend on examinations for discovery to answer proper questions arising from the answers to undertakings, answers to questions taken under advisement and refused that have been answered by agreement or ordered to be answered, including all questions in Category Nos. 1, 2 and 3; and
4. Costs of this motion are fixed in the all-inclusive amount of $6,000.00 payable by the plaintiff to the defendant.

Associate Justice B. McAfee Date: March 13, 2023